United States District Court, D. Massachusetts
COMMONWEALTH EQUITY SERVICES, LLC and MARGARET BENISON, Plaintiffs,
THE OHIO NATIONAL LIFE INSURANCE COMPANY, et al., Defendants.
MEMORANDUM AND ORDER
J. Casper United States District Judge.
Commonwealth Equity Services, LLC (“Commonwealth
Equity”) and Margaret Benison (“Benison”)
(collectively, “Plaintiffs”) filed this lawsuit
against Defendants the Ohio National Life Insurance Company
(“ONLIC”), Ohio National Life Assurance
Corporation (“ONLAC”) and Ohio National Equities,
Inc. (“ON Equities”) (collectively,
“Defendants”), alleging breach of contract (Count
II), breach of the implied covenant of good faith and fair
dealing (Count III), fraud (Count IV), tortious interference
with contractual and business relations (Count V), violation
of Mass. Gen. L. c. 93A (Count VI) and unjust enrichment
(Count VII) and seeking declaratory relief (Count I) and
injunctive relief (Count VIII). D. 1. Plaintiffs have moved
to compel arbitration and stay this proceeding pursuant to
Financial Industry Regulatory Authority (“FINRA”)
Rule 13200(a) and/or the arbitration agreement contained in
the Selling Agreement. D. 21. For the reasons discussed
below, Plaintiffs' motion to compel arbitration, D. 21,
Standard of Review
ruling on a motion to compel arbitration, courts should
“draw [upon] the relevant facts from the operative
complaint and the documents submitted to the [Court] in
support of the motion to compel arbitration.”
Cullinane v. Uber Techs., Inc., 893 F.3d 53, 55 (1st
Cir. 2018). Courts have consistently applied a summary
judgment standard to these types of motions. See Johnson
& Johnson Int'l v. P.R. Hosp. Supply, Inc., 258
F.Supp.3d 255, 259 (D.P.R. 2017) (applying the summary
judgment standard to a motion to compel arbitration where
parties had “relied extensively upon exhibits filed in
the record outside of the complaint”); Pelletier v.
Yellow Transp., Inc., 503 F.Supp.2d 397, 399 (D. Me.
2007) (citing cases). Accordingly, on a motion to compel
arbitration, the Court “considers] facts in the light
most favorable to the [non-movant] . . . and exercise[s] its
‘wide discretion' to look beyond the complaint at
pleadings and documents submitted by either party.”
Boulet v. Bangor Sec. Inc., 324 F.Supp.2d 120,
123-24 (D. Me. 2004) (quoting Anderson v. Delta Funding
Corp., 316 F.Supp.2d 554, 558 (N.D. Ohio 2004)); see
Aliments Krispy Kernels, Inc. v. Nichols Farms, 851
F.3d 283, 288-89 (3d Cir. 2017); Proulx v.
Brookdale Living Cmtys. Inc., 88 F.Supp.3d 27, 29
following facts are undisputed unless otherwise indicated.
Commonwealth Equity is a Massachusetts limited liability
company and independent broker dealer registered with FINRA,
as well as an investment advisor firm registered with the
United States Securities and Exchange Commission
(“SEC”). D. 1 ¶ 26. Commonwealth Equity
offers investment and advisory products and services directly
to retail customers through agents and brokers who are
licensed and registered with FINRA, the SEC and state
insurance agencies. D. 1 ¶ 48. Commonwealth Equity
supervises and processes the investment business of financial
professionals who affiliate themselves with Commonwealth
Equity. D. 1 ¶ 49. These professionals are known as
representatives. Id. Plaintiff Benison has been a
FINRA registered representative of Commonwealth Equity since
1998. D. 1 ¶ 27.
ONLIC and ONLAC are insurance companies that, among other
things, sell insurance-related products, including life
insurance. D. 23 at 4; D. 23-2 ¶ 5. Defendant ON
Equities is a wholly owned subsidiary of ONLIC, D. 1 ¶
30; D. 4 ¶ 30, and is registered with FINRA, D. 23-2
¶ 9. Neither ONLIC nor ONLAC is a member of FINRA. D.
23-2 ¶ 5.
The Selling Agreement
1998, Defendants entered into an agreement (the
“Selling Agreement”) with Commonwealth Equity,
pursuant to which Commonwealth Equity-through its
representatives- agreed to sell Defendants' contracts. D.
1-1. These “contracts” are securities, including
variable annuities. D. 22 at 3; see D. 1-7.
Commonwealth Equity representatives who sold the contracts,
such as Benison, were classified as independent contractors
of Defendants. D. 1-1 ¶ 16. The Selling Agreement
explicitly references representatives in its introduction and
in seven of the contract's twenty-four numbered sections,
see D. 1-1 ¶¶ 4, 5, 7, 9, 16, 17, 23, but
no representatives were signatories to the Selling Agreement.
sale of a contract by Commonwealth Equity and its
representatives included a customer premium, to be paid as a
commission. The Selling Agreement outlined a procedure for
the distribution of those commissions and provided they would
be paid according to a separate “Commission
Schedule.” D. 1-1 ¶ 9. According to the Commission
Schedule, ONLIC would pay ON Equities a small percentage of
each purchase payment and ON Equities would in turn pay
Commonwealth Equity. D. 1-7 at 45. Commonwealth Equity then
paid its representatives directly. D. 22 at 4; D. 1-1 ¶
9. Thomas DeGaetano, Vice President of Annuity Product
Management with ONLIC, attests that the individual variable
annuities at issue in this case were sold by ONLIC and not ON
Equities. D. 23-2 ¶ 9. He further attests that the
premiums paid for the purchase of such annuities went to
ONLIC and that commissions owed to Commonwealth Equity that
were based on the sale of such annuities were paid by ONLIC.
some of Defendants' variable annuity contracts,
Commonwealth Equity and its representatives could to choose
to be paid in the form of a “trail commission”
over the life of the contract. D. 1 ¶ 67; see
D. 1-2 at 1. A trail commission is compensation based on both
the premiums paid by the customer and the earnings on those
premiums that is deferred by Commonwealth Equity and the
representative for at least a year and that lasts until the
contract is annuitized or surrendered. D. 1 ¶ 69. For
example, if a representative sells a contract for a premium
of $100, 000 and agrees to a one percent trail commission
starting in deposit year seven, then the representative's
trail compensation for that sale would be $1, 000 plus the
earnings on the initial premium per year, but the
representative would only begin to get paid the trail
compensation seven years after the sale date of the contract.
Id. The Commission Schedule provided that
“[t]rail commissions [would] continue to be paid to the
broker dealer of record [Commonwealth Equity] while the
Selling Agreement remain[ed] in force.” D. 1-2 at 2.
the Selling Agreement, Commonwealth Equity and Defendants
agreed to be bound by all rules of the National Association
of Securities Dealers (“NASD”). D. 1-1 ¶ 3.
NASD was a predecessor entity to FINRA.
The Selling Agreement Addendum
Selling Agreement Addendum (“Addendum”) includes
an agreement signed by Commonwealth Equity and Defendants
about arbitration that provides as follows:
All parties to this agreement submit and agree that all
disputes between the parties of whatever nature or subject
matter relating to the duties, obligations, representations,
and warranties undertaken by this Agreement, and relating to
this Agreement itself, whether existing on the date hereof or
arising hereafter, shall be submitted to arbitration in
accordance with the Code of Arbitration Procedure ...